The Department of Public Works and Infrastructure (DPWI) is taking a strong stance to control expenses and obtain the greatest efficiencies out of the properties it leases for government departments.

Public Works and Infrastructure Minister Patricia de Lille says that, in addition to an overreliance on the private sector for property leases, some of the DPWI’s leasing portfolio challenges entails letting-out agreements that run on a month-to-month basis; a large number of rentals not being market-related; and high electricity and water costs.

The department has a hybrid model using State-owned property as well as leasing-in from the private sector to provide office accommodation for government departments.

However, there is currently an overreliance on the private sector for these properties and, while the DPWI wants to support and do business with the private sector, it has a duty to optimise use of the many buildings that it owns as the State landlord and as custodian of State-owned properties.

“Just as companies exist to provide services and make a profit, government has a responsibility to deliver services but to do so effectively while practising sound financial management,” she says.

Speaking during the first Landlord’s Conference, where the DPWI engaged with all landlords which it currently leases properties from, De Lille said that month-to-month leases, flagged by the Auditor-General as irregular expenditure, needed to be stopped.

“Over the years, the department had a recurring audit finding pertaining to the number of month-to-month leases that led to irregular expenditure.”

Many leases are operating on a month-to-month basis, owing to processes not being finalised and agreed upon for longer-term leases.

“We have been engaging landlords since last year on the issue of month-to-month leases. This situation has been improving over the past five years, where the department had over 1 700 leases out of 2 000 that were on month-to-month leases in 2017, to just under 200 out of 2 400 leases on month-to-month to date,” she said.

Further, a few years ago, in light of the serious problems caused by month-to-month leases and its associated costs, the department commissioned a study, which found that about 56% of the leases sampled had rentals that were, on average, 45% more than market rates.

Rental Amounts

In the Pretoria region, rental amounts were more than 66% above market rates, while Durban, Port Elizabeth and Johannesburg had over 60% of leases above the market rate, with Cape Town leases estimated at 50% above the market rate.

“This shows, from the leases sampled, government is paying a premium, compared with market rates,” De Lille commented.

This led to the department embarking on a drive to reduce its leasing-in costs by implementing several strategies, including the adoption of the Rhode Report as an independent tool to guide the department in terms of rental rates across the country; capping of the escalation rate at 6% for all lease renewals; identifying landlords with a national footprint and negotiating leases at a central point; and requesting clients for longer rental period mandates to reduce rental rates.

“With the renegotiating of the leases, we have been able to save government R273-million and the process is ongoing,” De Lille added, noting that the department has a duty to spend public funds wisely and not to make a profit or spend more than its supposed to.

In line with this, the DPWI also requested the private sector to “do their part” by putting in place measures to reduce water and energy demand in the buildings that the DPWI leases.

The DPWI property portfolio is a significant user of electricity and water and generates a significant amount of waste.

“Recent studies place yearly electricity and water consumption at an estimated 4 021 GWh and 39-million kilolitres respectively, with over 822 000 t of waste generated.

“This equates to an average yearly expenditure on electricity and water of R2.4-billion and R1.8-billion respectively,” she said.

She appealed to the landlords to reduce electricity and water use by 50% within the next year through the implementation of water and energy efficiency measures in their buildings.

This comes as the DPWI encourages private-sector participants across the renewable energy, energy and water efficiency and alternative waste management sectors to participate in the upcoming request for proposals (RfP) for the start of the Integrated Renewable Energy and Resource Efficiency Programme.

The DPWI, supported by the National Treasury’s Government Technical Advisory Centre’s transactional adviser, will publish the RfP in due course for the procurement of the programme, which will be the largest programme for the procurement of renewable energy and resource efficiency for public facilities, she explained.

“The DPWI, as the largest landlord and facilities manager in the country, has a responsibility to not only deliver and manage quality infrastructure but to combat climate change and enhance sustainable development through its mandate – such as providing buildings for government service delivery.”

The department is also undertaking the Refurbish, Operate and Transfer Programme (ROTP) to improve efficiencies in the State’s property portfolio.

The programme is part of the DPWI’s plan to pursue a more efficient strategy to improve the state of its infrastructure asset base and enable client departments using these assets to deliver services and have a developmental impact.

The conference, which was held at the Birchwood Hotel, in Boksburg, on July 27, was attended by more than 300 delegates, most of whom were property owners and landlords, as well as representatives from banks and property associations, such as the South African Property Owner’s Association and the Property Sector Charter Council.

“Our intention in calling this conference was to forge a greater understanding and links between the department and private landlords so that we can improve our respective processes and operations and work together seamlessly and more productively.”